Salesforce Inc (CRM) — Q4 2023 Earnings Call Transcript

Good afternoon and thanks for joining us today on our fiscal 2023 fourth quarter results conference call. Our press release, SEC filings and a replay of today's call can be found on our website. With me on the call today is Marc Benioff, Chair and CEO; Amy Weaver, President and Chief Finance Officer; and Brian Millham, President and Chief Operating Officer. As a reminder, our commentary today will include non-GAAP measures. Reconciliations between our GAAP and non-GAAP results and guidance can be found in our earnings and press release. Some of our comments today may contain forward-looking statements and are subject to risks, uncertainties and assumptions, which could change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risks, uncertainties and assumptions and other factors that could affect our financial results is included in our SEC filings, including our most recent report on Forms 10-K, 10-Q and any other SEC filings. Except as required by law, we do not undertake any responsibility to update these forward-looking statements. And with that, let me hand the call to Marc.

Thanks, Mike, and hey, thanks to all of you for joining the call. As you can see from our results, we had another strong quarter. Improving profitability is our highest priority, and that really showed up this quarter. Our goal is to make Salesforce the largest and most profitable software company in the world, and that is what we are doing. Six months ago, in September at our Dreamforce Investor Day, we shared with you our comprehensive transformation plan, the new day for profitable growth. But things have changed. As we entered our fourth quarter, we recognized that we needed to radically accelerate the transformation plan timeframe. We needed to press the hyperspace button and bring the 2-year goals forward quickly and exceed them. Now we immediately put into place an accelerated transformation plan in 4 areas: short-term and long-term restructuring of the company; improving profitability and productivity; prioritizing our core innovations; and a deeper and even stronger relationship with our shareholders, you. In fact, that's where we started. The very first thing we did when I became sole CEO 3 months ago was Amy and I promoted Mike Spencer, our Head of IR, to our leadership team. So we're all in much more communication with all of you. We're now moving aggressively across all 4 fronts of our transformation. First, we're reigniting our performance culture and doubling down on our accountable management of our sales organization, as you're about to hear from Brian. As you know, beginning in January, we also initiated a headcount reduction, and we're significantly consolidating our real estate footprint. Second, we're more closely scrutinizing every dollar of investment and resource and very focused on driving operational excellence and automation across the business. Third, our amazing engineering team is focused on integrating our acquisitions and prioritizing our core innovations that are driving customer success. And finally, as we set in motion, longer-term structural improvements, we're working with Bain on a comprehensive operating and go-to-market review. To ensure a high degree of accountability, our Board is forming a new business transformation committee, which I have joined, and we have fully disbanded our M&A committee as well to reflect our new focus. We also dramatically stepped up our communication feedback loop with our investment community, and I hope you all are feeling that. For the past several months, all of us at Salesforce, including me, all of our Board members, including our Lead Independent Director, Robin Washington and our senior management team have spent a lot of time listening to and working with all of our investors. As I said, we've hit that hyperspace button since we last talked to you a quarter ago, and I'm thrilled with the progress we've made. Changes that used to take months are happening in weeks. Changes that used to take weeks are happening in days. And changes that used to take days are happening in hours. Powered by this transformation, we delivered another strong quarter. Our team really delivered on both the top and bottom line, exceeding our expectations. As I said, improving our profitability is our highest priority. And in Q4, we accelerated operating margin to a new record high. Non-GAAP operating margin for fiscal '23 was 22.5%, significantly above our forecast, an improvement of almost 4 points year-over-year. Revenue was $8.38 billion, up 14% year-over-year or 17% in constant currency, which is above what we forecast to deliver for the quarter. And for the full year, we delivered $31.4 billion in revenue, up 18% year-over-year or 22% in constant currency. It's one of the best performances of any enterprise software company our size, and it's amazing that Salesforce is now over $30 billion in revenue. We closed fiscal year '23 with operating cash flow reaching $7.1 billion, up 19% year-over-year, the highest cash flow in our company's history and one of the highest cash flows of any enterprise software company our size ever. I also want to call out the great progress we have made with MuleSoft and Tableau. As you know, we've been focused over the past few quarters on reigniting MuleSoft sales growth, and this quarter was evidence that those efforts are paying off beautifully. MuleSoft was included in 7 of our top 10 deals in the quarter, and Tableau was included in every one of our top 10 deals. These acquired products are integral to our Customer 360 and enabling our customers to use our data product line to achieve a new level of excellence in managing their customer relationships and its critical data. In short, our transformation has been radically accelerated. As you can see, our performance is significantly up already. Our productivity is also up. Our profitability is up, and we are not done. Now we're putting into place the next phase of our transformation to profitable growth. We just rolled out our new business plan, which we call the V2MOM in partnership with our employees worldwide. Everyone in the company is now aligned around our highest priorities and our aspirations. I'm excited to announce that looking forward to fiscal year '24, we expect a non-GAAP operating margin of approximately 27%, an additional acceleration of 4.5 points year-over-year. And for fiscal year '24 revenue, we're guiding to $34.7 billion at the high end of the range, over 10% projected year-over-year growth. But that's not all, we're also looking at our overall share count. And as we focus on reducing dilution, we've already returned $4 billion of the original $10 billion authorization in our share repurchase plan that we announced in August. And our Board has now approved a substantial increase in that share repurchase plan from $10 billion to $20 billion. This will allow us to fully offset dilution from stock-based compensation. We're also thrilled to welcome 3 new members to our Board, Mason Morfit, the CEO and Chief Investment Officer of ValueAct Capital; Arnold Donald, the former President and Chief Executive Officer of Carnival Corporation; and Sachin Mehra, the Chief Financial Officer of Mastercard, 3 amazing executives who have already made their mark on business, and I'm looking forward to them making their mark on Salesforce. We're incredibly happy that these phenomenal executives are joining us to help guide our next level of profitable growth. That makes 5 new Board members we have brought on in just the past 16 months, another part of our accelerated transformation. I also want to say how grateful we are to our 2 outgoing Board members, Sandy Robertson and Alan Hassenfeld, both of whom many of you know and who, for the last 2 decades, have given Salesforce and our industry incredible leadership, guidance and service. Thank you so much, Alan and Sandy. We know that we have the right team, the right strategy and the right products to compete and complete this transformation. And we're continuing to build our future. I've never been more inspired by our engineering teams, and it's no wonder that we're ranked #1 CRM by IDC for the ninth year in a row. We're delivering tremendous customer success and continue to gain market share in CRM. Our customer revenue attrition is at its lowest level in our 24-year history. This is a critical metric of all of our customers' success. And we know every digital transformation begins and ends with the customer. We have an incredible vision for the future of CRM, a fully integrated suite built on our new Genie Data Cloud and our next-generation platform powered by real-time hyperscale data, AI and automation. Our new Data Cloud is the most exciting innovation that we've developed since the original Salesforce clouds and our metadata platform, which we viewed as our first horizon and our second horizon for our technology. Our third horizon is our data cloud. In this new AI world that we are all now entering, nothing is more important for our customers than our new data cloud, which is rapidly becoming the intelligent heart of their customer engagement. Data cloud becomes our most important cloud, augmenting every Salesforce cloud and making every part of our Customer 360 more automated, more intelligent and more real time. We just launched Tableau plus Data Cloud natively integrating Tableau with Data Cloud. So every customer can easily visualize, automate, explore and act on their data in real time. And during the quarter, I was inspired by partnering with Jim Farley, the CEO of Ford on Ford's deployment of Data Cloud. Jim and Ford, they're leveraging Data Cloud to unify their customer data and deliver personalized real-time customer engagement and dealer focus. Starting with their amazing new Mach-E electric Mustang, an amazing car, Ford proactively updates customers about vehicle delivery through both email and SMS with our marketing cloud. I loved getting my text actually, it was amazing. Ford delivers dealers now with leads and intelligent insights to drive faster sales with our Sales Cloud. And their technicians, well, they're receiving the next best action and technical insights through our Service Cloud. All of this, all of it, it's driven by our Data Cloud, delivering intelligent, real-time and automated customer engagement from within the Salesforce platform. I've also been very inspired by our work with Boston Scientific and their amazing CEO, Michael Mahoney. Our teams were able to use our Data Cloud to create a unified view of their customers. In just 5 months, they were able to bring data from the front office and back office and all of their systems together. Boston Scientific's ability to create customer segments using our Marketing Cloud went from 3 to 6 months to nearly real-time, and they could deliver next best action insights to their sales teams in the flow of work in Sales Cloud and used our Marketing Cloud to deliver personalized product recommendations on their website in real time. And Boston Scientific as a regulated company, well, with Data Cloud, they're able to easily specify data retention policies for compliance. Now as a longtime customer, I'll tell you, Boston Scientific and Michael, well, they've humbled me personally and really humbled all of us at Salesforce with their incredible innovations, their amazing leadership and especially their use of our Data Cloud. This is only the beginning of what's possible. As we integrate more native automation, intelligence, and real-time connections into our Data Cloud and applications, we are also shifting our internal resources to prioritize a Data Cloud-first approach. Next week, during our TrailheadDX conference in San Francisco on March 7 and 8, we will showcase how we are enhancing our platform with new EinsteinGPT technology, which is the world’s first generative AI for CRM. This innovation will greatly complement our Data Cloud and the core Einstein AI platform. EinsteinGPT will be incorporated into all of our clouds, as well as Tableau, MuleSoft, and Slack. Additionally, we are exploring new paths to utilize AI for our future and our customers by collaborating with the rapidly growing AI ecosystem in our industry. I have been truly impressed by companies like Anthropic, a leading generative AI provider, using Slack as their interface for AI assistance. The significance of Slack as a powerful enterprise productivity platform, user interface, and vital data source for these new AI systems is driving a variety of new applications, and I am incredibly excited about what lies ahead. To summarize, our transformation is underway. We are working to make Salesforce one of the most profitable software companies globally, boasting one of the highest cash flows and one of the largest companies in our sector. The numbers this quarter reflect why I feel motivated, inspired, and confident that we can accelerate our progress beyond expectations. Now, I would like to hand it over to Brian, our Chief Operating Officer, and Amy, my close partner in driving this transformation. Many of you are familiar with Brian and have collaborated with him in various executive roles at Salesforce over his more than 23 years with us. His employee number is actually lucky #13. No one has achieved greater customer success than him at Salesforce, and I am thrilled to have him as our COO. I deeply appreciate his leadership and the success he and his team have experienced, and what a fantastic quarter he delivered. Thank you, Brian. In closing, I want to express my gratitude to all of our Ohana—our employees, customers, partners, and shareholders—for another strong quarter. Now, Brian, it's over to you.

Thank you, Marc. As Marc said, the accelerated transformation to profitable growth we have underway is already having a positive impact as reflected in our strong results in the fourth quarter. I'm pleased with how we're improving our execution, delivering customer success in the ongoing measured buying environment. As part of our short-term and long-term restructuring, we've been re-architecting how we go to market in a more efficient, productive, and profitable way. We've reduced the size of the sales and success organization by 10% and are planning further improvements through the work we're doing with Bain. We're also laser-focused on performance, productivity and accountability of all of our teams. We are better aligning incentives with margins, removing layers and increasing spans of control to unleash even higher performance. We're inspecting every part of our business to find opportunities to drive efficiencies and reduce cost of sales, marketing and G&A. We've learned that we needed to reboot our entire sales enablement process to ensure faster onboarding with reps able to better understand our entire product portfolio and speak the language of our customers in weeks, not months. During the pandemic, we saw productivity drop among our account executives who were working exclusively from home. I believe when our people are together, they're better learners, collaborators and networkers. It also reinforces our performance culture. That's why our sales, success and service teams are in front of our customers a minimum of 4 days a week. Getting together in person is accelerating enablement and driving our performance and productivity. I'm confident these changes will drive the outcomes that we are all looking for. Now before I hand it off to Amy, I'll briefly share some customer highlights from the quarter. We had great customer wins across all products, industries, segments and geographies. We deepened our relationships with Walmart, State Farm, IBM, Siemens, the State of New York, Volkswagen Group, Hitachi and many more leading companies. I'm very proud of our teams that we recorded record low attrition once again this quarter, which is a testament to how our Customer 360 platform is providing the cost savings efficiency and productivity gains our customers need today. As customers are looking to consolidate platforms and reduce complexity, we're seeing many multi-cloud expansions, a key growth strategy for us. Our top 10 wins in the quarter included 5 or more of our cloud. And our top 5 customer wins included 7 or more of our clouds. This is an example of our Customer 360 strategy working. We also continue to see strong momentum from our vertical solutions, which deepened our customer relationships across industries and geographies while accelerating time to value. In the quarter, 8 of our 13 industry clouds grew above 50% ARR, just unbelievable results there. Verticals are a key driver of our growth strategy, and that's why we've amplified them aggressively in this year's V2MOM. Tableau and MuleSoft and Slack continue to be highly relevant for our customers. And as Marc noted in his comments, they're part of our largest and most strategic deals in the quarter. And we're very proud of the progress we're seeing under the new leadership to more deeply integrate these acquired companies into our core sales and service motions. Marc also mentioned Data Cloud. It's going to be an incredible driver of organic growth going forward as these new capabilities are built on the platform and seamlessly integrate into some of our largest clouds, Sales Cloud, Service Cloud, Marketing Cloud and Commerce Cloud. We're seeing many more companies use Data Cloud like Formula 1, American Family Insurance, PGA TOUR Superstore who are using this amazing technology to deliver intelligent, automated, and real-time customer engagement. It is a huge opportunity. In closing, I'm immensely grateful to our customers, our employees and partners and our shareholders for their continued support. We are unwavering in our commitment to deliver customer success and in our transformation to profitable growth. Now over to Amy.

Thank you, Brian. It is great to be here today to talk about our financial results and the transformation underway. As we laid out at Investor Day in September, it is a new day for Salesforce. As Marc called out, we are focusing on 4 key areas: short- and long-term expense restructuring; employee productivity; product innovation; and of particular importance to me, continuing to build on our relationships with our shareholders. Near our long-term restructuring is absolutely a necessary step to reach our goals. Over the past very intense 90 days since our last earnings call, Marc, Brian and I have spent countless hours together and with our leadership team to ensure our cost restructuring actions accelerate our profitable growth goals. We have already taken a difficult action on decreasing our workforce, and we are consolidating our real estate footprint. I want to emphasize that these are just the first steps. As we drive longer-term structural improvements, I look forward to working closely across the company on a comprehensive operating and go-to-market review. Since I took on the role of the CFO more than 2 years ago, I've truly enjoyed spending time with and hearing feedback from our shareholders. Just this past quarter, I was able to meet with shareholders extensively, both virtually and in person, in San Francisco, in New York and across Europe. Your feedback has been immensely valuable in helping us shape our transformation. And based on that feedback, I am more confident than ever in our profitable growth framework, disciplined capital allocation strategy, and opportunity to drive shareholder value. Now turning to our results for Q4 fiscal year '23, beginning with top line commentary. For the fourth quarter, revenue was $8.38 billion, up 14% year-over-year or 17% in constant currency, with the beat primarily driven by a reignite MuleSoft and Tableau and slight improvement on foreign exchange rates. For the full fiscal year, revenue was $31.4 billion, up 18% or 22% in constant currency. The total foreign exchange headwind for the year was approximately $860 million. Geographically, we saw strong new business growth in the United Kingdom, France and Switzerland, while the United States sales environment remained measured. In Q4, the Americas revenue grew 15%; EMEA grew 13% or 20% in constant currency; and APAC grew 18% or 30% in constant currency. From an industry perspective, we saw strong growth in public sector and travel transportation and hospitality, while the financial services and high-tech sectors showed weakness. And from a product perspective, as mentioned, MuleSoft and Tableau outperformed our expectations, while we continue to see customer spending pressure in both Commerce and Marketing. For revenue attrition, we remain at record lows, ending the quarter below 7.5%, reflecting the value that our services are providing our customers and their customer success. Non-GAAP operating margin finished stronger than expected in Q4 at 29.2% and 22.5% for the full fiscal year. The higher-than-expected performance does include some one-time benefits I want to call out. First, there is a restructuring benefit of approximately 1.5 points for Q4. Additionally, in Q4, there were approximately 4.5 points of temporal benefits from license-based revenue performance, annual compensation rationalized for business performance, as well as other one-time efficiencies and savings. Even when normalizing for these benefits, this still represents our highest ever quarterly and annual non-GAAP margin performance. Q4 operating cash flow was $2.8 billion, up 41% year-over-year. Q4 free cash flow was $2.6 billion, up 42% year-over-year. For fiscal year '23, operating cash flow was $7.1 billion, up 19% year-over-year. As a reminder, this includes a 4-point headwind from cash taxes associated with tax law changes that require the capitalization of certain R&D costs. Free cash flow finished at $6.3 billion, up 19% year-over-year, driven by strong collections during the final quarter of the year. Turning to remaining performance obligation, or RPO, which represents all future revenue under contract. This ended Q4 at $48.6 billion, up 11% year-over-year. Current remaining performance obligation, or CRPO, ended at $24.6 billion, up 12% year-over-year and 13% in constant currency. The outperformance was driven by strong go-to-market execution, particularly on early renewals and MuleSoft and some recovery in foreign exchange rates. Finally, we continue to deliver on our commitment to returning cash to shareholders. We returned $2.3 billion during the quarter for a total of $4 billion since announcing our first-ever share repurchase program in August. This represents more than 60% of free cash flow for fiscal year '23. Before moving to our guidance, I want to briefly discuss the current macro environment. In Q4, we continued to see the measured environment we've called out over the past 2 quarters. This resulted again in elongated sales cycles, additional deal approval layers and deal compression. Our guidance assumes these trends persist with no material improvement or deterioration. Now to our guidance. Let's start with fiscal year '24. As we've discussed over the last year, Salesforce is deeply committed to structural margin expansion, and we are accelerating on our new day for profitable growth framework. At Dreamforce, we guided to 25% plus margins by FY '26, and we emphasized our ambition to grow margins beyond that content. Now for fiscal year '24, we are pleased to share that we expect non-GAAP operating margin of 27%, representing a 4.5 point improvement year-over-year and exceeding our goal by 2 years. And we are just getting started. One item of note, our guidance includes slightly under one half points of benefit due to a depreciation change to the useful life of certain equipment by 1 year effective February 1. For our infrastructure-related equipment, this changed the useful life from approximately 4 to 5 years. And for IT employee equipment, this changed from approximately 3 to 4 years. And as a general reminder, because our regional revenue and expenses are typically in the same currencies, there tends to be a natural FX hedge in our operating margin. On revenue, we are expecting $34.5 billion to $34.7 billion, representing over 10% growth year-over-year and the same in constant currency. On attrition, starting in FY '24, we are including MuleSoft and Tableau in the metric. As a result, attrition is expected to be slightly above 7.5%. Next, we are planning for stock-based compensation as a percent of revenue to begin trending lower this year to below 9% in fiscal year '24. This is primarily a result of the decreasing impact from prior M&A as well as adjustments being made to our equity program. We expect fiscal year '24 GAAP EPS of $2.59 to $2.61, including estimated charges for the January restructuring of $0.85. Non-GAAP EPS is expected to be $7.12 to $7.14. We expect our fiscal year '24 operating cash flow growth to be approximately 15% to 16%. Important to note, this includes an estimated 14-point headwind related to the restructuring. As a reminder, we will see an increase in our cash taxes in fiscal '24 as we draw down our remaining net operating losses. CapEx for the fiscal year is expected to be slightly below 2.5% of revenue. This results in free cash flow growth of approximately 16% to 17% for the fiscal year, inclusive of the restructuring charge mentioned above. Now to guidance for Q1. On revenue, we expect $8.16 billion to $8.18 billion, growth of approximately 10% or 12% in constant currency. This reflects a $150 million FX headwinds. For Q1, we expect GAAP EPS of $0.24 to $0.25 and non-GAAP EPS of $1.60 to $1.61. CRPO growth for Q1 is expected to be approximately 11% year-over-year and the same in constant currency. Our guidance continues to incorporate the persistent measured customer buying behavior. On long-term targets, I'd like to provide a few updates. First, with the acceleration on our profitability framework in FY '24, I am very pleased to announce that we now expect to achieve non-GAAP operating margin of at least 30% in Q1 of fiscal year '25. And I want to emphasize that 30% represents a milestone, but not the destination. We are not putting a ceiling on our margin aspirations. We are thrilled that we are exceeding our FY '26 profitability goals years in advance. Note that we are not reiterating our fiscal year '26 revenue target of $50 billion at this time due to the uncertain macro and currency environments that we have discussed. We anticipate having further updates to our long-term plans at our next Investor Day. Next, as we continue to focus on shareholder return and disciplined capital allocation, I'd like to share a few additional updates. I'm pleased that the Board has approved an increase to our share repurchase authorization from $10 billion to $20 billion. As a result, we now expect to fully offset our stock-based compensation dilution through our share repurchases in fiscal year '24. On M&A, we are confident in our current portfolio and are focused on continued integration of current assets. Reflective of this, you have already heard from Marc that the Board has decided to disband our M&A committee. In closing, I would like to share a deep gratitude for our shareholders, our customers and especially our employees. Our relentless focus on execution and our proactive management in the current environment allowed us to close out a strong quarter and set us up for a transformational fiscal year '24. It is a new day at Salesforce. And as we look ahead, I'm excited for the opportunity in front of us as we continue to drive profitable growth and shareholder value. Now Mike, should we open the call up for questions?

Yes, please, Amy. Operator, let's go to questions, please.

Congratulations on a strong finish to the fiscal year. I wanted to start by discussing the growth aspect. You exceeded expectations in Q4, but as we move forward, there seem to be many changes happening within Salesforce, including a restructuring of your go-to-market strategy. How can you assure us that these changes will not hinder your growth potential moving forward, and that you won't face additional challenges as you navigate this restructuring? Also, for Amy, when you provided guidance for FY '24, did you take into account any potential negative impacts from this restructuring? Did you lower any of your productivity expectations to address any risks or challenges related to these sales changes?

Well, Keith, first of all, thanks for the question. Really appreciate it. And I agree we had very strong performance in our Q4. Very happy with the quick pivot we made enabling our salespeople to talk differently about the values our customers get. Time to value is very critical to our customers, automation, digital transformation, efficiencies and cost reductions in their organizations. And we did a beautiful job in the fourth quarter to drive that message to our customers to see better-than-expected performance. On your question about next year and some of the changes we're seeing in our organization, we feel very good about the work that we're doing. As we mentioned in the commentary, the organic innovation that's coming out of our product organization is phenomenal. We have an incredible portfolio to go sell them the Customer 360, new product that we can go sell in Data Cloud. And as you know, the CRM market continues to grow very fast in double digits, and we think we should be taking market share in that market environment. I also would like to say, I think we have an opportunity to drive higher productivity amongst our salespeople. I think we have an opportunity to bundle products together and to show up differently in front of our customers, to consolidate organizations that have been stand-alone sales organizations in the past. Bundling products together, driving higher ASP per salesperson is really what we want to go do next year. And we don't think that the impact of some of the changes that we're making, the architecture of the organization is going to have an impact on our growth next year. Amy, over to you.

Great. Thanks, Brian. Keith, so a couple of things. First, just going back to your question on growth and the beat for Q4. I did want to point out that, that was primarily from MuleSoft and Tableau. That license revenue came in very strong in Q4. And as you know, the way that we account for license revenue gives it more of a boost in quarter than our subscription. Also, we do see a slight improvement on foreign exchange beyond what we were expecting. So all of that led to a very strong Q4 on the revenue side. In terms of the FY '24 guide, we feel very good about the guide coming in, a little above 10% for this year. We've taken into account all of the factors that we're talking about, including macro. On macro, what we're assuming is really no near-term change when it comes to the selling environment. So not expecting to get an upside, nor expecting a material deterioration. And I think Brian really already hit on the restructuring.

Congrats on the quarter, and thank you for the very comprehensive outlook going into next year. Marc, the question is for you. I think this is obviously a new chapter for Salesforce. You're back as sole CEO. I think I get a lot of questions from folks asking how you're going to be prioritizing your time now, how you're going to be spending your time given these new parameters of execution you're setting out for the company. So I was wondering if you could just comment on that a little bit.

Thanks so much for that question. I really appreciate it. I really appreciate everyone's support during the quarter. I don't think we could have had this quarter without everyone who's on the call. We really are very grateful to the support we had, especially from the analysts and the shareholders, because, really, through their guidance and enlightenment, we were able to execute a different plan. I think when we look back, and I think we have to look backwards to go look forward. Obviously, the 2021 calendar year is like something that none of us have ever experienced in the technology business. It was incredible. You can see that throughout the whole industry. Then as we entered 2022, it was not 2021, and I think we all understand that. Currencies, measured buying environment, macro conditions, inflation, the stock market. So when we planned 2022 out of 2021, I'm talking calendar years now, that's where I think we had a little incongruence, and then we had to adjust and shift and pivot, and that's really what happened right around Dreamforce. We really started to see it. We had that great Investor Day with you all. We put out there our profitability framework. We put together our fiscal year 2016 targets. And 90 days ago when everything happened, you know what happened. We don't have to go through it again. It doesn't matter. It's behind us. But you all said, hey, you guys can hit the hyperspace button, just like I said, and we did. We hit the hyperspace button, and we said, we can hit these targets now. We don't have to wait 2 years, and that's where I'm putting my time, my energy, my effort. I'm very proud of the team for delivering this Q4 operating margin of 29.2% because that really has become like our North Star. As Amy just said, as we look to next year, even in Q1 and so forth, we're saying that this 30% plus world, this is we should be living in that. We have onboarded the entire management team worldwide to that fact. It's a core part of our V2MOM. It's one of the name of our methods that we are guiding 30% plus. And that's our direction. We had a strong quarter, with Q4 revenue reaching $8.38 billion, surpassing our expectations for various reasons, including currency fluctuations, but primarily due to exceptional execution from our Tableau and MuleSoft teams. The performance for the year was remarkable at $31.4 billion, showcasing our strong position as a software company with excellent margins and cash flow. Our focus is on two main areas: first, delivering the annual contract values while maintaining stability and productivity in our sales organization; and second, prioritizing profitability, which is our primary strategy. We've emphasized this at every management meeting. This focus on efficiency has allowed us to achieve significant results in a short period, despite historically prioritizing growth. There have been times when we needed to scale back, such as during the recession in '01 and '02, as well as in '08 and '09. Currently, we see this moment as an opportunity to reassess. It’s an incredible time for us to achieve great results. We’re reporting over 10% revenue growth, and we aim to achieve more than 27% margin targets for the year. The actual growth rate is significantly higher. Last year, we delivered more than 4 percentage points, and this year, we’re at 4.5 points, which is my main focus. I've received excellent coaching, and I want to give special thanks to my mentor, Larry Ellison, who has dedicated a lot of time to sharing the Oracle playbook with me. I'm very grateful for his support. He was the first person to reach out to me after the earnings report was released today. It's reassuring to have friends during important times, and he has been a fantastic ally. We are implementing that playbook to improve our margins. They clearly have top-tier margins, so having someone like him on my side is invaluable, as is the support from all of you. Without your backing, we wouldn't have been able to achieve this quarter's results. Thank you all for everything.

Congratulations on a nice finish to the year and margin and outlook. I wanted to ask how important the concept of CDP and vertical solutions are. As you pivot towards this ongoing sales productivity and asking reps to sell more of the solution of all the great components in the Salesforce stack, how important are those solutions and really pulling in more of those components over time?

That's a great question, Brad. Thank you for your support and for the quarter. We have a wide range of excellent products, including Sales Cloud, Service Cloud, our platform, Marketing Cloud, and Commerce Cloud. Recently, we have seen an evolution in our customer data platform (CDP). It began in Marketing and has expanded significantly. We are entering an era of AI, and our customers are integrating intelligent devices into our platform to enhance their relationships with their connected customers. You might recall our initial attempt with Thunder, the IoT cloud, which didn't pan out because customers preferred an integrated solution within Salesforce, relying on our metadata platform to create a data lake. We listened and have rebuilt it within our platform. The Data Cloud is now in use by customers. For instance, Ford has done remarkable things with the Data Cloud, utilizing it alongside Sales Cloud, Service Cloud, and Marketing Cloud. They launched their first product this quarter, the Mach-E. If you own a Mach-E, you might be receiving messages from Ford through our Data Cloud, which is exciting. Another success story is Boston Scientific, which effectively used the Data Cloud to integrate their front and back office systems in an impressive manner. I recently reviewed how only 1% of Formula 1 fans attend the races in person. The remaining 99% connect with the sport electronically, which requires an intelligent AI-based system. With Data Cloud, you can incorporate your own AI model. We will integrate it, allowing our system to connect automatically with your customers. As they engage with our various cloud services, the AI-driven Data Cloud is handling this significant workload. It's poised to be a major growth driver for us, likely our fastest-growing cloud this quarter. I'm excited to reveal more about our initiatives in this area. You’ve witnessed some of this at Dreamforce, including our deep integration of Tableau, which now has a server. Tableau also serves as an excellent interface for all Salesforce data through the Data Cloud, showcasing impressive work from our engineering team, who deserve significant recognition for this success.

And Brad, I want to add a quick remark about our approach to the industry. A significant factor in our success this quarter and a major focus for us in the years ahead is our substantial investment in our industry cloud. You've likely noticed from our commentary that eight out of thirteen of our industry clouds experienced over 50% growth in ARR this quarter. This demonstrates the return on our investment in technology and the effectiveness of our sales team in communicating with customers to drive business growth. Additionally, our strategies for international expansion of all our products and multi-cloud selling present a fantastic opportunity moving forward. Therefore, the industry plays a crucial role in our strategy.

Congrats on the tough decisions this quarter and the great quarter. So I think you all be praised for that and the hard work you've done. A question for me, more for Brian. Obviously, there were comments out from you guys around sales, sales productivity as we kind of went through the January. If you think about the actions you're taking now, where do you see that sales productivity that you're seeing at the moment? And where do you think Salesforce and the setup that you have here?

Raimo, I'm not completely clear on your question as your line is cutting out a bit. However, I'll address what I believe was your inquiry regarding productivity. Productivity is a crucial element of our growth strategy going forward. Our goal is to increase the sales from our account executives every month and every quarter. We have some effective strategies in place for that. Enablement plays a significant role in our approach. As I mentioned earlier, we’re focused on equipping our entire sales teams with knowledge of our full product portfolio and encouraging a return to the office to enhance productivity and learning, which are vital for our future growth. I also mentioned an opportunity to integrate our products around the buyer, aiming to create bundles that can help increase average selling prices while solving more customer problems with a unified selling approach instead of relying on multiple selling efforts as we have in the past. Therefore, productivity will be a key driver of our growth strategy moving forward. Historically, we've maintained productivity levels and increased hiring of account executives to fuel our growth. Moving forward, we plan to reverse this approach and focus on enhancing productivity as our main driver. I appreciate your question and hope I understood it correctly despite the connection issues.

What an amazing end of fiscal year. Congratulations to the team. Much much much better than expected, brighter days ahead. Question for Marc. And maybe, Brian, you can chime in here. So Marc, we went through the 2008, 2009 recession, 2010 rebound, back then, the company was a smaller company, but you still were able to get profitability up. We went through a bit of a downturn, and we came out of it. So are there pyramids to be drawn in this cycle? Because there's certainly uncertainty about recession, whatnot, that's damping spending. If we take that as a fact, the growth rate that you guided to, should that be the aspirational long-term growth rate of the company? Or do you think if and when the recession clears that there should be a rebound in spending? And we understand that all the go-to-market rationalization that you and Brian and Amy you're all working on should allow us to gain share. So help us think about the recovery curve of Salesforce in the next economic cycle.

To understand our current situation, I revisited the data from 2001, 2002, and 2008, 2009. You made an insightful point, Kash. During 2008 and 2009, we experienced a significant drop in annual contract value and sharply reduced spending, managing to improve our margins by about 6 percentage points in that period. While I can't recall the specific figures, it was evident that marketing companies, including ours, typically scale back on hiring sales staff and cut marketing expenses during downturns. This pattern is widely recognized; when the stock market crashes, CEOs tend to halt investments. We observed similar trends in mid-2022, particularly between August and November. After Dreamforce, we felt ready to implement our strategy effectively. We have a robust recession strategy and the ability to adapt our company accordingly. We've demonstrated this in the past three months, starting a profitable growth strategy. It's crucial for every executive to prioritize profitability and continually recognize that Salesforce is not just one of the largest, but also among the fastest-growing firms. I believe we gained significant annual contract value, likely more than all other SaaS companies combined. Our ACV figures are substantial, and we are the most profitable software company globally with the highest cash flow. This focus drives us to ensure we have the necessary expertise within our company. At Dreamforce, Mason Morfit was present alongside his founder, Jeff Ubben. We collaborated with Mason, who brought us exceptional ideas regarding distribution, pricing, and efficiency, presented in impressive strategic presentations. I have never encountered such high-quality work from an outsider before. I was inspired by Mason's contributions and thought it would be beneficial to have him on the board, where he has already added tremendous value. His experience on the Microsoft Board has been invaluable to us. I believe he starts today, but he has already been actively engaged with us. I also want to recognize Jeff, who has been a longtime friend and offered great insights. I'll tell you that there are many of them. I've learned from everyone and truly value their feedback. It's been fantastic. We are also welcoming two more excellent Board members today. Sachin, the CFO of Mastercard, brings incredible financial expertise, and Arnold Donald, who I have known for many years, is one of the best Fortune 100 CEOs of our time and a remarkable executive. I look forward to everyone getting to know him. I also want to extend a huge thank you to Sandy and Alan. Many of you have worked with Sandy throughout your careers. It's difficult to see Sandy leave the Board, as we care for him, but after 20 years, it seems to be the right time. We are having dinner next week, and there will be a lot of gratitude expressed then. Additionally, we are going to repurchase a significant amount of stock, $20 billion, which I believe is timely. We've already completed $4 billion in repurchases, which is critical for us, and we have even established a new Business Transformation Committee to closely monitor the key performance indicators we're discussing. Our focus remains on performance, productivity, profitability, prioritizing our products, and leading with growth, such as with our new Data Cloud and verticals, which responds to the insightful questions raised. We have numerous growth opportunities. When the buying environment returns strongly, we will be well positioned for the future, supported by our excellent customer relationships. This is evident in our recent achievement of hitting a record low in customer attrition.

Amy, in light of Marc's focus on profitability, could you explain what is driving this substantial increase? Can you highlight the main areas where you believe you can make significant cuts? Additionally, it appears that you can continue to grow at a strong pace while maintaining higher margins. This suggests that you are not sacrificing growth, especially since you're still projecting double-digit growth.

Brent, thanks for the question. So we've got great plans for this year. As you know, we guided to 27% for fiscal year '24, and we plan to hit 30% early in the following year. Very excited about what we're doing. This is a journey that we've been on for quite some time. Just in the last 2 years, we have increased our operating margin almost 500 basis points, and this was while fully absorbing Slack. We announced at Investor Day, we were going to keep going and set out a goal of 25% or more by FY '26. We really hit the gas pedal on that over the last 90 days, accelerating to the 27 and the 30 that I mentioned to you. And again, as I said, even at 30, I don't view as a ceiling. That's really just getting us started on this front. Now in terms of how this is going on, there has been a lot we've been doing leading up to this with discipline across the company, looking for savings. We took 2 major steps in January. One was the real estate. We announced that we are going to be shrinking our global real estate considerably over the upcoming years. The other was the headcount. And on the job eliminations, I just do want to pause for a moment on that. On the call like this, it's easy to talk about that very clinically as the headcount just represents dollars and not real human beings, we all fully realize that there's employees whose lives and careers and families were deeply impacted by these decisions. And I just want to assure our employees that we never lose sight of that. But these actions weren't our first steps, and there are going to be plenty more actions that we take to increase our operating margin going forward. We have a number of initiatives underway. Brian talked about quite a few in the sales and marketing area. Sales and G&A are really 2 of our greatest opportunities, although we have started a comprehensive operating and go-to-market review that is going across all of our business. This has led to Bain coming in to work with us on this initiative. I believe we have some great initiatives underway. My confidence really stems from the passion and skills of our employees. When we focus on sales, we became the fastest-growing enterprise software company ever. When we focus on product, we created an unmatched Customer 360. Now, we are asking all of our incredibly talented and passionate employees to direct that same focus towards productivity and efficiency. With their support, I have no doubt that we will achieve world-class profitability.

Amy, just continuing on the margin conversation, you hinted in your comments about a desire to close the gap between GAAP and non-GAAP earnings. I'm just wondering if you could talk a little bit about what key levers you're using to do that. You hinted that adjustments to the equity program. It might be interesting to hear a little bit more. And over what time frame do you think that bridge might close?

Thank you for the question, Karl. There is definitely a growing emphasis on GAAP margins, especially regarding the addition of stock-based compensation into our non-GAAP operating margin. I spent a significant amount of time in Europe meeting with investors in January, and this topic was a primary focus there. Our stock-based compensation last year was just over 10%, and we aim to reduce that to below 9% this year. We have two main strategies to achieve this. Firstly, we are moving past many of the stock-based compensation expenses that came with our recent acquisitions, which will help improve the numbers. Secondly, our Compensation Committee is making thoughtful adjustments to how we grant equity and the types of equity we provide. We will share more insights on this as we approach proxy season, but I believe we are on a positive trajectory over the next few years.

Congratulations to the entire team on an Oscar-worthy quarter. Karl really did a great job of asking the stock-based compensation question I was going to ask. So I'd like to pivot a little bit back towards maybe getting your understanding of the macro environment that helped you build your outward guidance. Brian, maybe this is a question for you in terms of getting a sense for where you saw points of stickiness or points of disruption or otherwise within your various vertical categories.

Thank you, Sarah, for the question. We are indeed in a cautious buying environment, which is reflected in elongated sales cycles and increased layers of approvals, along with possibly smaller deal sizes. However, we've focused on training our team to effectively manage these challenges in the market. We experienced this improvement in Q4, and we expect it to continue into fiscal year '24. In our SMB market, these economic challenges affect us more significantly, and we noticed some impact on our self-serve strategies for Slack. Conversely, we experienced strong performance in sectors like public sector, manufacturing, engineering, energy, and travel hospitality during the quarter. While we face ongoing challenges in technology and financial services, I am optimistic about our ability to improve in these areas in FY '24. Thank you again, Sarah, for your question.

Okay. Thanks, Sarah, and thanks, everyone, for joining us today. We appreciate everyone taking the time and look forward to seeing everyone over the coming several weeks. Thanks.

Thanks, all.

Aloha.